You may have paid for car insurance
for the next few years, but in those years, you never made any claims, because
you feel there is no problem with your car, then how is your money managed by
the insurance company, how does the insurance company make money? Do they make
a lot of money from these insurance services? How much profit do you think the
car insurance will get? Let's find out together, how does the car insurance
company actually works and how can this company continue to run and be
interested.
How do car insurance
companies have money?
There are several ways an insurance company gains, the first way is to charge premiums to the insured/customer, the second is by Float or investment income, the third way is to benefit from the policy and the last is profit when there are no claims from customers. So that you understand better, here is the explanation.
Charge Premiums to Customers/Insured
Insurance
companies earn profits by withdrawing more money from customers by increasing
premiums than they have to pay when insurance claims. However, due to the
proliferation of the insurance business, insurance companies have become very
competitive, this practice has become unwelcome. The way to increase premiums
is to divide consumers into several classes or categories. Consumers who are
willing to pay more premiums are given a discount. Meanwhile, consumers with
lower premiums are not subject to any discount at all. Classes are also divided
based on their abilities and risk factors.
Investing
Insurance Premium Payment
The
second way that insurance companies make a profit is by using what is known as
a 'float' to make investments. Companies that promise to take over the sum
insured reach billions, it is impossible to only rely on premium funds from
their customers to replace claims. They also benefit by rotating the total
customer premiums collected in various financial investments.
Head
of Actuarial and Risk Management Division of AAJI Fauzi Arfan the insurance
industry has benefited from investment management for a long time. Investment
plays a big role in profit because the insurance management fund is very large.
Insurance float itself is the difference between the premiums collected by the
insurance company and the claims that must be paid to customers. For example,
insurance companies earn a total of IDR 700 billion in a year from the premiums
paid by customers on their insurance policies. For example, in one year there
has been an insurance claim of Rp 350 billion. This means that the insurance
company's profit is Rp 350 billion (Rp 700 billion – Rp 350 billion = Rp 350
billion). It does sound like a profit – but it's not. The difference is that
the company's profit (insurance) is calculated on an annual basis, while the
float is calculated monthly. An insurance company may pay fewer claims in
January than in June, for example, and during the month between February and
May it can use the available funds – i.e., ‘idle’ premiums – to invest in other
sectors. Simply put, this practice of borrowing money from customers is very
beneficial for insurance companies because they do not have to pay interest to
customers.
Advantages
of Policy Cancellation
The
insurance company will benefit if there is an insurance account closing because
the risk of your claim will be lost and the company can keep all the premiums
you have paid. If the scheme is half an investment, such as Unit Link
insurance, part of the profit according to the calculation will be paid to you
as a customer. However, even if the scheme is half an investment when the
policy cancellation is complete, the insurance company has actually posted a
profit. Another thing that can cause a policy cancellation is if you don't pay
the premium for a long time. If this is the case, the prepaid premium will be
to the benefit of the insurance company. So, the insurance company doesn't
really matter if there is an account closing, they can still benefit from the
premiums you have paid.
Profit
When No Claim
If
your car insurance contract ends with no claim submission at all, it means that
the premium you pay becomes the insurance company's profit. This is normal and
indeed the purpose of insurance is to provide a sense of security from risk
during the insurance contract.
Do insurance companies
make a lot of money?
The average customer may only know
that the insurance company makes a profit from the administrative fees that are
deposited by its customers every month. But imagine how much profit you can get
with this administration fee that ranges from Rp. 100 to 200 thousand per year?
Of course, not much can't even cover the company's operational costs. Because
they cannot rely solely on customer contributions, insurance companies are
looking for other, of course, legal ways to generate profits so that the
company can survive, paying the huge claims they promise to customers. You need
to know, at least the insurance company must prepare almost double the total premium
paid by life insurance customers. So, it needs careful calculations and
strategies so that this company can grow and develop like other business
practices.
With sizable premiums from
customers that continue to be deposited continuously, generally, companies have
about start from hundreds of millions of US dollars, various insurance
companies can reap such huge profits from investing this 'float' so they can
still pay claims and keep the rest. It can be concluded that insurance
companies make a profit by 'selling' insurance beyond the required value and by
temporarily borrowing money from their customers, namely customers aka premium
payers, to then invest. However, not all insurance companies can survive in the
highly competitive insurance company market. There are times when insurance
companies lose money because of wrong investments. Like it or not, they have to
bear huge losses from this company. As long as the insurer has sufficient
liquidity and sufficient long-term asset value to cover such losses and pay
customer claims, it can continue to operate like any other business practice.
0 comments
EmoticonEmoticon